Chapter 9 Plant Assets, Natural Resources and Intangible Assets PDF

Chapter 9 Plant Assets, Natural Resources and Intangible Assets
C
102. A method that charges the same amount of expense to each period of the asset's useful
life is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
D
103. A method that allocates an equal portion of the total depreciable cost for a plant asset to
each unit produced is called:
A. Accelerated depreciation.
B
104. A depreciation method in which a plant asset's depreciation expense for a period is
determined by applying a constant depreciation rate to the asset's beginning-of-period book
value is called:
A. Book value depreciation.
A
105. A depreciation method that produces larger depreciation expense during the early years of
an asset's life and smaller expense in the later years is a (an):
A. Accelerated depreciation method.
B. Book value depreciation method.
C. Straight-line depreciation method.
D. Units-of-production depreciation method.
E. Unrealized depreciation method.
B
106. A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1, 2008. It has an estimated useful life of 5 years. Using the straight-line method,
how much depreciation expense should the company recognize on December 31, 2008?
A. $1,000.
B. $1,333.
C. $1,533.
D. $4,000.
E. $4,600.
C
107. A company purchased a cash register on January 1 for $5,400. This register has a useful
life of 10 years and a salvage value of $400. What would be the depreciation expense for the
second-year of its useful life using the double-declining-balance method?
A. $ 500.
B. $ 800.
C. $ 864.
D. $1,000.
E. $1,080.
B
108. A company purchased a rope braiding machine for $190,000. The machine has a useful
life of 8 years and a residual value of $10,000. It is estimated that the machine could produce
750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced.
In the second year, production increased to 109,000 units. Using the units-of-production
method, what is the amount of depreciation that should be recorded for the second year?
A. $25,200.
B. $26,160.
C. $26,660.
D. $27,613.
E. $53,160.
A
109. Revenue expenditures:
A. Are additional costs of plant assets that do not materially increase the asset's life or its
productive capabilities.
B. Are known as balance sheet expenditures.
C. Extend the asset's useful life.
D. Substantially benefit future periods.
E. Are debited to asset accounts.
E
110. Another name for a capital expenditure is:
A. Revenue expenditure.
B. Asset expenditure.
C. Long-term expenditure.
D. Contributed capital expenditure.
E. Balance sheet expenditure.
B
111. Extraordinary repairs:
A. Are revenue expenditures.
B. Extend an asset's useful life beyond its original estimate.
C. Are credited to accumulated depreciation.
D. Are additional costs of plants assets that do not materially increase the asset's life.
E. Are expensed as incurred.
E
112. Ordinary repairs:
A. Are expenditures to keep an asset in normal operating condition.
B. Are necessary if an asset is to perform to expectations over its useful life.
C. Are treated as expenses.
D. Include cleaning, lubricating, and normal adjusting.
E. All of these.
E
113. Betterments:
A. Are expenditures making a plant asset more efficient or productive.
B. Are also called improvements.
C. Do not always increase an asset's life.
D. Are capital expenditures.
E. All of these.
B
114. An asset's book value is $18,000 on June 30, 2008. The asset is being depreciated at an
annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31,
2009 for $15,000, the company should record:
A. A loss on sale of $1,500.
B. A gain on sale of $1,500.
C. Neither a gain nor a loss is recognized on this type of transaction.
D. A gain on sale of $3,000.
E. A loss on sale of $3,000.
E
115. An asset's book value is $36,000 on January 1, 2008. The asset is being depreciated $500
per month using the straight-line method. Assuming the asset is sold on July 1, 2009 for
$25,000, the company should record:
A. Neither a gain or loss is recognized on this type of transaction.
B. A gain on sale of $2,000.
C. A loss on sale of $1,000.
D. A gain on sale of $1,000.
E. A loss on sale of $2,000.
B
116. Information on a depreciable asset owned by Wilson Engineering is as follows:
Purchase date............ .....January 1,2008
purchase price.........................................45000
salvage value..............................................5000
useful life .................................................8 years
depreciation method...............straight-line
If the asset is sold on July 1, 2012 for $20,000, the journal entry to record the sale will include:
A. A credit to cash for $20,000.
B. A debit to accumulated depreciation for $22,500.
C. A debit to loss on sale for $10,000.
D. A credit to loss on sale for $10,000.
E. A debit to gain on sale for $2,500.
B
117. Information on a depreciable asset is as follows:
Purchase date............ .....September 1,2008
purchase price.........................................75000
salvage value..............................................10000
useful life .................................................4 years
depreciation method...............double -declining-blance
If the asset is sold on January 1, 2011 for $13,000, the journal entry to record the sale will
include:
A. A credit to gain on sale for $8,000.
B. A debit to loss on sale for $2,625.
C. A credit to accumulated depreciation for $59,375.
D. A debit to loss on sale for $3,042.
E. A credit to gain on sale for $4,979.
E
118. An asset can be disposed of by:
A. Discarding it.
B. Selling it.
C. Exchanging it for another asset.
D. Donating it to charity.
E. All of these.
A
119. A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize a:
A. $0 gain or loss.
B. $20,000 gain.
C. $20,000 loss.
D. $40,000 loss.
E. $60,000 gain.
B
120. A company discarded a display case originally purchased for $8,000. The accumulated
depreciation was $7,200. The company should recognize a (an):
A. $0 gain or loss.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.
B
121. A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000 with
accumulated depreciation of $60,000. The proceeds from the insurance company were
$90,000. The company should recognize:
A. A loss of $25,000.
B. A gain of $25,000.
C. A loss of $65,000.
D. A gain of $65,000.
E. A gain of $90,000.
E
122. Natural resources:
A. Include standing timber, mineral deposits, and oil and gas fields.
B. Are also called wasting assets.
C. Are long-term assets.
D. Are depleted.
E. All of these.
A
123. Depletion:
A. Is the process of allocating the cost of natural resources to periods in which they are
consumed.
B. Is also called depreciation.
C. Is also called amortization.
D. Is an unrealized expense reported in equity.
E. Is the process of allocating the cost of intangibles to periods in which they are used.
B
124. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It
expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected
to be $250,000. The depletion expense per ton of ore is:
A. $0.75.
B. $0.625.
C. $0.875.
D. $6.00.
E. $8.00.
D
125. A company purchased a mineral deposit for $800,000. It expects this property to produce
1,200,000 tons of ore and to have a salvage value of $50,000. In the current year, the company
mined and sold 90,000 tons of ore. Its depletion expense for the current period equals:
A. $ 15,000.
B. $ 60,000.
C. $150,000.
D. $ 56,250.
E. $139,500.
E
126. Intangible assets include:
A. Patents.
B. Copyrights.
C. Trademarks.
D. Goodwill.
E. All of these.
A
127. Amortization:
A. Is the systematic allocation of the cost of an intangible asset to expense over its estimated
useful life.
B. Is the process of allocating to expense the cost of a plant asset to the accounting periods
benefiting from its use.
C. Is the process of allocating the cost of natural resources to periods when they are consumed.
D. Is an accelerated form of expensing an asset's cost.
E. Is also called depletion.
B
128. A patent:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the life
of the creator plus 70 years.
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
D. Is the amount by which the value of a company exceeds the fair market value of a company's
net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the life
A
129. A copyright:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the life
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
D. Is the amount by which the value of a company exceeds the fair market value of a company's
net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the life
C
130. A leasehold:
A. Is a short-term rental agreement.
B. Is the same as a patent.
C. Are the rights granted to the lessee by the lessor of a lease.
D. Is recorded as revenue expenditure when paid.
E. Is an investment asset.
A
131. Goodwill:
A. Is not amortized, but is tested annually for impairment.
B. Is amortized using the straight-line method.
C. Is amortized using the units-of-production method.
D. May be amortized using either the straight-line or units-of-production method.
E. Is never amortized or tested for impairment.
C
132. A company's old machine that cost $40,000 and had accumulated depreciation of $30,000
was traded in on a new machine having an estimated 20-year life with an invoice price of
$50,000. The company also paid $43,000 cash, along with its old machine to acquire the new
machine. If this transaction has commercial substance, the new machine should be recorded at:
A. $40,000.
B. $47,000.
C. $50,000.
D. $53,000.
E. $10,000.
A
133. Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of
$260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of
$400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant the
company paid $300,000 in addition to the old boat to acquire the new boat. If this transaction
lacks commercial substance, what amount of gain or loss should be recorded on this exchange?
A. $0 gain or loss.
B. $40,000 gain.
C. $40,000 loss.
D. $60,000 loss
E. $100,000 loss.
D
134. Huffington Company traded in an old delivery truck for a new one. The old truck had a cost
of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of
$125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant
they paid $113,000 in addition to the old truck to acquire the new truck. If this transaction has
commercial substance, what is the recorded value of the new truck?
A. $15,000
B. $75,000
C. $113,000
D. $125,000
E. $128,000
D
135. A company bought a new display case for $42,000 and was given a trade-in of $2,000 on
an old display case, so the company paid $40,000 cash with the trade-in. The old case had an
original cost of $37,000 and accumulated depreciation of $34,000. If the transaction has
commercial substance, the company should record the new display case at:
A. $ 2,000.
B. $ 3,000.
C. $40,000.
D. $42,000.
E. $43,000.
E
136. A company purchased a machine valued at $66,000. It traded in an old machine for a
$9,000 trade-in allowance and the company paid $57,000 cash with the trade-in. The old
machine cost $44,000 and had accumulated depreciation of $36,000. This transaction has
commercial substance. What is the recorded value of the new machine?
A. $ 8,000.
B. $ 9,000.
C. $57,000.
D. $65,000.
E. $66,000.
A
66. Plant assets are:
A. Tangible assets used in the operation of a business that have a useful life of more than one
accounting period.
B. Current assets.
C. Held for sale.
D. Intangible assets used in the operations of a business that have a useful life of more than
one accounting period.
E. Tangible assets used in the operation of business that have a useful life of less than one
accounting period.
E
67. A main accounting issue for plant assets is:
A. Computing the cost of the plant assets.
B. Matching the costs of plant assets against revenues for the periods they benefit.
C. Accounting for repairs and improvements to plant assets.
D. The disposal of plant assets.
E. All of these
B
68. Plant assets are:
A. Current assets.
B. Used in operations.
C. Natural resources.
D. Long-term investments.
E. Intangible.
E
69. The relevant factor(s) in computing depreciation include:
A. Cost.
B. Salvage value.
C. Useful life.
D. Depreciation method.
E. All of these.
E
70. Salvage value is:
A. Also called residual value.
B. Also called scrap value.
C. An estimate of the asset's value at the end of its benefit period.
D. A factor relevant to determining depreciation.
E. All of these.
C
71. Depreciation:
A. Measures the decline in market value of an asset.
B. Measures physical deterioration of an asset.
C. Is the process of allocating to expense the cost of a plant asset.
D. Is an outflow of cash from the use of a plant asset.
E. Is applied to land.
A
72. The useful life of a plant asset is:
A. The length of time it is productively used in a company's operations.
B. Never related to its physical life.
C. Its productive life, but not to exceed one year.
D. Determined by the FASB.
E. Determined by law.
A
73. Inadequacy refers to:
A. The insufficient capacity of a company's plant assets to meet the company's growing
production demands.
B. An asset that is worn out.
C. An asset that is no longer useful in producing goods and services.
D. The condition where the salvage value is too small to replace the asset.
E. The condition where the asset's salvage value is less than its cost.
B
74. Obsolescence:
A. Occurs when an asset is at the end of its useful life.
B. Refers to a plant asset that is no longer useful in producing goods and services.
C. Refers to the insufficient capacity of a company's plant assets to meet the company's
productive demands.
D. Occurs when an asset's salvage value is less than its replacement cost.
E. Does not affect plant assets.
B
75. Once the estimated depreciation expense for an asset is calculated:
A. It cannot be changed due to the historical cost principle.
B. It may be revised based on new information.
C. Any changes are accumulated and recognized when the asset is sold.
D. The estimate itself cannot be changed; however, new information should be disclosed in
financial statement footnotes.
E. It cannot be changed due to the consistency principle.
C
76. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it
was decided that the original estimate of useful life should have been 10 years. At that point the
remaining cost to be depreciated should be allocated over the remaining:
A. 2 years.
B. 5 years.
C. 7 years.
D. 8 years.
E. 10 years.
C
77. A change in an accounting estimate is:
A. Reflected in past financial statements.
B. Reflected in future financial statements and also requires modification of past statements.
C. A change in a calculated amount that is included in current and future years' financial
statements as a result of new information or subsequent developments and from better insight
or improved judgment.
D. Not allowed under current accounting rules.
E. Considered an error in the financial statements.
A
78. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle
cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line
depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and
there was no change in the estimated salvage value. The depreciation expense in year 5
equals:
A. $ 5,375.00.
B. $ 2,687.50.
C. $ 5,543.75.
D. $10,750.00.
E. $ 2,856.25.
D
79. A company used straight-line depreciation for an item of equipment that cost $12,000, had a
salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three
complete years, the salvage value was reduced to $1,200 and its total useful life was increased
from 5 years to 6 years. Determine the amount of depreciation to be charged against the
machine during each of the remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.
D
80. Nelson Company purchased equipment on July 1 for $27,500 and decided to depreciate the
equipment on the straight-line method over its useful life of five years. Assuming the
equipment's salvage value is $3,500, the amount of monthly depreciation expense Nelson
should recognize is:
A. $2,400
B. $ 200
C. $4,800
D. $ 400
E. $ 450
C
81. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a cost of
$100,000.
The asset is expected to have a salvage value of $15,000 at the end of its five-year useful life. If
the asset is depreciated on the double-declining-balance method, the asset's book value on
December 31, 2010 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000
A
82. Based on the information provided in question #81, Thomas Enterprises should recognize
what amount of depreciation expense in 2012?
A. $4,440
B. $6,610
C. $1,524
D. $5,520
E. $2,000
E
83. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, 2008. The asset
will be depreciated using the straight-line method over its four-year useful life. Assuming the
asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this
asset on December 31, 2011?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67
B
84. Based on the information provided in question # 83, Lomax Enterprises should recognize
depreciation expense in 2011 in the amount of:
A. $19,166.67
B. $5,000.00
C. $5,500.00
D. $20,000.00
E. $4,166.67
C
85. The following information is available on a depreciable asset owned by First Bank & Trust:
The asset's book value is $70,000 on October 1, 2010. On that date, management determines
that the asset's salvage value should be $5,000 rather than the original estimate of $10,000.
Based on this information, the amount of depreciation expense the company should recognize
during the last three months of 2010 would be:
A. $2,187.50
B. $1,718.75
C. $2,031.25
D. $2,321.43
E. $1,964.29
C
86. Many companies use an accelerated depreciation method because:
A. It is required by the tax code.
B. It is required by financial reporting rules.
C. It yields larger depreciation expense in the early years of an asset's life.
D. It yields a higher income in the early years of the asset's useful life.
E. The results are identical to straight-line depreciation.
A
87. The modified accelerated cost recovery system (MACRS):
A. Is included in the U.S. federal income tax rules for depreciating assets.
B. Is an out-dated system that is no longer used by companies.
C. Is required for financial reporting.
D. Is identical to units of production depreciation.
E. All of these.
A
88. The straight-line depreciation method and the double-declining-balance depreciation
method:
A. Produce the same total depreciation over an asset's useful life.
B. Produce the same depreciation expense each year.
C. Produce the same book value each year.
D. Are acceptable for tax purposes only.
E. Are the only acceptable methods of depreciation for financial reporting.
A
89. Total asset turnover is used to evaluate:
A. The efficiency of management's use of assets to generate sales.
B. The necessity for asset replacement.
C. The number of times operating assets were sold during the year.
D. The cash flows used to acquire assets.
E. The relation between asset cost and book value.
B
90. A total asset turnover ratio of 3.5 indicates that:
A. For every $1 in sales, the firm acquired $3.50 in assets during the period.
B. For every $1 in assets, the firm produced $3.50 in net sales during the period.
C. For every $1 in assets, the firm earned gross profit of $3.50 during the period.
D. For every $1 in assets, the firm earned $3.50 in net income.
E. For every $1 in assets, the firm paid $3.50 in expenses during the period.
C
91. Total asset turnover is calculated by dividing:
A. Gross profit by average total assets.
B. Average total assets by gross profit.
C. Net sales by average total assets.
D. Average total assets by net sales.
E. Net assets by total assets.
D
92. A company had average total assets of $897,000. Its gross sales were $1,090,000 and its
net sales were $1,000,000. The company's total asset turnover equals:
A. 0.82.
B. 0.90.
C. 1.09.
D. 1.11.
E. 1.26.
D
93. Dell had net sales of $35,404 million. Its average total assets for the period were $14,502
million. Dell's total asset turnover equals:
A. 0.40.
B. 0.35.
C. 1.45.
D. 2.44.
E. 3.50.
B
94. Land improvements are:
A. Assets that increase the usefulness of land, and like land, are not depreciated.
B. Assets that increase the usefulness of land, but that have a limited useful life and are subject
to depreciation.
C. Included in the cost of the land account.
D. Expensed in the period incurred.
E. Also called basket purchases.
E
95. Plant assets include:
A. Land.
B. Land improvements.
C. Buildings.
D. Machinery and equipment.
E. All of these.
E
96. The cost of land can include:
A. Purchase price.
B. Assessments by local governments.
C. Costs of removing existing structures.
D. Fees for insuring the title.
E. All of these.
C
97. A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a
property. The property included land appraised at $87,500, land improvements appraised at
$35,000, and a building appraised at $52,500. What should be the allocation of this property's
costs in the company's accounting records?
A. Land $75,000; Land Improvements, $30,000; Building, $45,000.
B. Land $75,000; Land Improvements, $30,800; Building, $46,200.
C. Land $81,500; Land Improvements, $32,600; Building, $48,900.
D. Land $79,500; Land Improvements, $32,600; Building, $47,700.
E. Land $87,500; Land Improvements; $35,000; Building; $52,500.
E
98. A company purchased property for a building site. The costs associated with the property
were:
Purchase price...............................................175000
Real estate commissions..............................15000
legal fees.................................................................800
Expense of clearing the land.....................2000
expenses to remove old building.............1000
What portion of these costs should be allocated to the cost of the land and what portion should
be allocated to the cost of the new building?
A. $175,800 to Land; $18,800 to Building.
B. $190,000 to Land; $3,800 to Building.
C. $190,800 to Land; $1,000 to Building.
D. $192,800 to Land; $0 to Building.
E. $193,800 to Land; $0 to Building.
B
99. A company purchased property for $100,000. The property included a building, a parking lot,
and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at
$18,000. Land should be recorded in the accounting records with an allocated cost of:
A. $ 0.
B. $ 36,000.
C. $ 42,000.
D. $ 45,000.
E. $100,000
C
100. The formula for computing annual straight-line depreciation is:
A. Depreciable cost divided by useful life in units.
B. Cost plus salvage value divided by the useful life in years.
C. Cost less salvage value divided by the useful life in years.
D. Cost multiplied by useful life in years.
E. Cost divided by useful life in units.
B
101. The total cost of an asset less its accumulated depreciation is called:
A. Historical cost.
B. Book value.
C. Present value.
D. Current (market) value.
E. Replacement cost.
46. A company purchased land for $350,000 cash. Real estate brokers' commission was
$25,000 and $35,000 was spent for demolishing an old building on the land before construction
of a new building could start. Under the historical cost principle, the cost of land would be
recorded at
a. $385,000.
b. $350,000.
c. $375,000.
d. $410,000.
: D, LO: 1,
: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution: $350,000 + $25,000 + $35,000 = $410,000
47. A company purchased land for $84,000 cash. Real estate brokers' commission was $5,000
and $7,000 was spent for demolishing an old building on the land before construction of a new
building could start. Proceeds from salvage of the demolished building was $1,200. Under the
historical cost principle, the cost of land would be recorded at
a. $94,800.
b. $84,000.
c. $89,800.
d. $96,000.
: A, LO: 1,
Solution: $84,000 + $5,000 + ($7,000 − $1,200) = $94,800
48. Which of the following is not properly classified as property, plant, and equipment?
a. Building used as a factory.
b. Land used in ordinary business operations.
c. A truck held for resale by an automobile dealership.
d. Land improvement, such as parking lots and fences.
: C, LO: 1,
: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA
FN: Reporting, AICPA PC: None, IMA: Reporting
49. A characteristic of a plant asset is that it is

a. intangible.
b. used in the operations of a business.
c. held for sale in the ordinary course of the business.
d. not currently used in the business but held for future use.
: B, LO: 1,
50. Which one of the following items is not considered a part of the cost of a truck purchased
for business use?
a. Sales tax.
b. Truck license.
c. Freight charges.
d. Cost of lettering on side of truck.
: B, LO: 1,
51. Which of the following would not be included in the Equipment account?
a. Installation costs.
b. Freight costs.
c. Cost of trial runs.
d. Electricity used by the machine.
: D, LO: 1,
52. Which of the following assets does not decline in service potential over the course of its
useful life?
a. Equipment.
b. Furnishings.
c. Land.
d. Fixtures.
: C, LO: 1,
FN: Reporting, AICPA PC: None, IMA: Business Economics
53. The four subdivisions for plant assets are
a. land, land improvements, buildings, and equipment.
b. intangibles, land, buildings, and equipment.
c. furnishings and fixtures, land, buildings, and equipment.
d. property, plant, equipment, and land.
: A, LO: 1,
54. The cost of land does not include

a. real estate brokers' commission.
b. annual property taxes.
c. accrued property taxes assumed by the purchaser.
d. title fees.
: B, LO: 1,
FN: Measurement, AICPA PC: None, IMA: Business Economics
55. The Land account would include all of the following costs except
a. drainage costs.
b. the cost of building a fence.
c. commissions paid to real estate agents.
d. the cost of tearing down a building.
: B, LO: 1,
56. Whyte Clinic purchases land for $280,000 cash. The clinic assumes $3,000 in property
taxes due on the land. The title and attorney fees totaled $2,000. The clinic had the land graded
for $4,400. What amount does Whyte Clinic record as the cost for the land?
a. $284,400.
b. $280,000.
c. $289,400.
d. $285,000.
: C, LO: 1,
Solution: $280,000 + $3,000 + $2,000 + $4,440 = $289,400
57. Burke Company purchases land for $90,000 cash. Burke assumes $2,500 in property taxes
due on the land. The title and attorney fees totaled $1,000. Burke has the land graded for
$2,200. They paid $10,000 for paving of a parking lot. What amount does Burke record as the
cost for the land?
a. $93,200.
b. $105,700.
c. $95,700.
d. $90,000.
: C, LO: 1,
Solution: $90,000 + $2,500 + $1,000 + $2,200 = $95,700
58. Aber Company buys land for $145,000 on 12/31/13. As of 3/31/14, the land has
appreciated in value to $152,000. On 12/31/14, the land has an appraised value of $155,400.
By what amount should the Land account be increased in 2014?
a. $0.
b. $7,000.
c. $3,400.
d. $10,400.
: A, LO: 1,
59. Givens Retail purchased land for a new parking lot for $75,000. The paving cost $105,000
and the lights to illuminate the new parking area cost $36,000. Which of the following
statements is true with respect to these additions?
a. $180,000 should be debited to the Land account.
b. $141,000 should be debited to Land Improvements.
c. $216,000 should be debited to the Land account.
d. $216,000 should be debited to Land Improvements.
: B, LO: 1,
Solution: $105,000 + $36,000 = $141,000
60. Shaffer Company acquires land for $62,000 cash. Additional costs are as follows.
Removal of shed $ 300
Filling and grading 1,500
Salvage value of lumber of shed 120
Broker commission 1,130
Paving of parking lot 10,000
Closing costs 560
Shaffer will record the acquisition cost of the land as
a. $62,000.
b. $63,690.
c. $65,610.
d. $65,370.
: D, LO: 1,
Solution: $62,000 + ($300 − $120) + $1,500 + 1,130 + $560 = $65,370
61. Ramirez Company acquires land for $210,000 cash. Additional costs are as follow.
Removal of shed $ 2,000
Filling and grading 6,000
Salvage value of lumber of shed 1,280
Broker commission 4,520
Paving of parking lot 40,000
Closing costs 3,400
Ramirez will record the acquisition cost of the land as
a. $224,640.
b. $227,200.
c. $225,920.
d. $210,000.
: A, LO: 1,
Solution: $210,000 + ($2,000 − $1,280) + $6,000 + $4,520 + $3,400 = $224,640
62. Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to
illuminate the new parking area cost $18,000. Which of the following statements is true with
respect to these additions?
a. $45,000 should be debited to the Land account.
b. $18,000 should be debited to Land Improvements.
c. $63,000 should be debited to the Land account.
d. $63,000 should be debited to Land Improvements.
: D, LO: 1,
Solution: $45,000 + $18,000 = $63,000
63. Land improvements should be depreciated over the useful life of the
a. land.
b. buildings on the land.
c. land or land improvements, whichever is longer.
d. land improvements.
: D, LO: 1,
64. National Molding is building a new plant that will take three years to construct. The
construction will be financed in part by funds borrowed during the construction period. There are
significant architect fees, excavation fees, and building permit fees. Which of the following
statements is true?
a. Excavation fees are capitalized but building permit fees are not.
b. Architect fees are capitalized but building permit fees are not.
c. Interest is capitalized during the construction as part of the cost of the building.
d. The capitalized cost is equal to the contract price to build the plant less any interest on
borrowed funds.
: C, LO: 1,
: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA
65. A company purchases a remote building site for computer operations. The building will be
suitable for operations after some expenditures. The wiring must be replaced to computer
specifications. The roof is leaky and must be replaced. All rooms must be repainted and
recarpeted and there will also be some plumbing work done. Which of the following statements
is true?
a. The cost of the building will not include the repainting and recarpeting costs.
b. The cost of the building will include the cost of replacing the roof.
c. The cost of the building is the purchase price of the building, while the additional expenditures
are all capitalized as Building Improvements.
d. The wiring is part of the computer costs, not the building cost.
: B, LO: 1,
: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA
66. Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500.
The logo of the company is painted on the side of the truck for $1,200. The truck's annual
license is $120. The truck undergoes safety testing for $220. What does Arnold record as the
cost of the new truck?
a. $44,040.
b. $43,920.
c. $42,500.
d. $41,920.
: B, LO: 1,
Solution: $40,000 + $2,500 + $1,200 + $220 = $43,920
67. Rodgers Company purchased equipment and these costs were incurred:
Cash price $45,000
Sales taxes 3,600
Insurance during transit 640
Installation and testing 860
Total costs $50,100
Rodgers will record the acquisition cost of the equipment as
a. $45,000.
b. $48,600.
c. $49,240.
d. $50,100.
: D, LO: 1,
Solution: $45,000 + $3,600 + $640 + $860 = $50,100
68. Kathy's
s purchased a delivery van with a $50,000 list price. The company was given a $5,000 cash
discount by the dealer, and paid $2,500 sales tax. Annual insurance on the van is $1,250. As a
result of the purchase, by how much will Kathy's
s increase its van account?

a. $50,000.
b. $45,000.
c. $48,750.
d. $47,500.
: D, LO: 1,
Solution: $50,000 − $5,000 + $2,500 = $47,500
69. Rains Company purchased equipment on January 1 at a list price of $75,000, with credit
terms 2/10, n/30. Payment was made within the discount period. Rains paid $3,750 sales tax on
the equipment, and paid installation charges of $1,320. Prior to installation, Rains paid $3,000 to
pour a concrete slab on which to place the equipment. What is the total cost of the new
equipment?
a. $78,750.
b. $81,570.
c. $83,070.
d. $75,750.
: B, LO: 1,
Solution: ($75,000 × .98) + $3,750 + $1,320 + $3,000 = $81,570
70. Carpino Company purchased equipment and these costs were incurred:
Cash price $70,000
Sales taxes 3,500
Insurance during transit 750
Installation and testing 1,500
Total costs $75,750
What amount should be recorded as the cost of the equipment?
a. $70,000.
b. $73,500.
c. $74,250.
d. $75,750.
: D, LO: 1,
Solution: $70,000 + $3,500 + $750 + $1,500 = $75,750
71. Ryan, Inc. purchased a delivery truck with a $42,000 list price. The company was given a
$4,200 cash discount by the dealer, and paid $2,100 sales tax. Annual insurance on the truck is
$1,050. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?
a. $42,000.
b. $37,800.
c. $40,950.
d. $39,900.
: D, LO: 1,
Solution: $42,000 − $4,200 + $2,100 = $39,900

72. Runge Company purchased machinery on January 1 at a list price of $250,000, with credit
terms 2/10, n/30. Payment was made within the discount period. Runge paid $12,500 sales tax
on the machinery, and paid installation charges of $4,400. Prior to installation, Runge paid
$10,000 to pour a concrete slab on which to place the machinery. What is the total cost of the
new machinery?
a. $261,900.
b. $271,900.
c. $276,900.
d. $252,500.
: B, LO: 1,
Solution: ($250,000 × .98) + $12,500 + $4,400 + $10,000 = $271,900
73. Schrock Company purchases a new delivery van for $60,000. The sales taxes are $4,500.
The logo of the company is painted on the side of the van for $1,200. The van's annual license
is $120. The van undergoes safety testing for $220. What does Schrock record as the cost of
the new van?
a. $66,040.
b. $65,920.
c. $64,500.
d. $63,920.
: B, LO: 1,
Solution: $60,000 + $4,500 + $1,200 + $220 = $65,920
74. All leases are classified as either

a. capital leases or long-term leases.
b. capital leases or operating leases.
c. operating leases or current leases,
d. long-term leases or current leases.
: B, LO: 1,
75. Interest may be included in the acquisition cost of a plant asset

a. during the construction period of a self-constructed asset.
b. if the asset is purchased on credit.
c. if the asset acquisition is financed by a long-term note payable.
d. if it is a part of a lump-sum purchase.
: A, LO: 1,
FN: Measurement, AICPA PC: None, IMA: FSA
76. Which of the following is included in the cost of constructing a building?

a. Cost of paving a parking lot.
b. Cost of repairing vandalism damage incurred shortly after construction is complete.
c. Interest incurred during construction.
d. Cost of removing the demolished building existing on the land when it was purchased.
: C, LO: 1,
77. The balance in the Accumulated Depreciation account represents the

a. cash fund to be used to replace plant assets.
b. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
c. amount charged to expense in the current period.
d. amount charged to expense since the acquisition of the plant asset.
: D, LO: 2,
78. The term applied to the periodic expiration of a plant asset's cost is
a. amortization.
b. depletion.
c. depreciation.
d. cost expiration.
: C, LO: 2,
79. Which one of the following items is not a consideration when recording periodic
depreciation expense on plant assets?
a. Salvage value.
b. Estimated useful life.
c. Cash needed to replace the plant asset.
d. Cost.
: C, LO: 2,
80. Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
a. equal and equitable manner.
b. accelerated and accurate manner.
c. systematic and rational manner.
d. conservative market-based manner.
: C, LO: 2,
81. The cost of a long-term asset is expensed

a. when it is paid for.
b. as the asset benefits the company.
c. in the period in which it is acquired.
d. in the period in which it is disposed of.
: B, LO: 2,
82. The book value of an asset is equal to the

a. asset's fair value less its historical cost.
b. blue book value relied on by secondary markets.
c. replacement cost of the asset.
d. asset's cost less accumulated depreciation.
: D, LO: 2,
83. Accountants do not attempt to measure the change in a plant asset's market value during
ownership because
a. the assets are not held for resale.
b. plant assets cannot be sold.
c. losses would have to be recognized.
d. it is management's responsibility to determine fair values.
: A, LO: 2,
FN: Reporting, AICPA PC: None, IMA: FSA
84. Depreciation is a process of

a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.
: C, LO: 2,
85. Recording depreciation each period is necessary in accordance with the
a. going concern principle.
b. historical cost principle.
c. expense recognition principle.
d. asset valuation principle.
: C, LO: 2,
86. In computing depreciation, salvage value is

a. the fair value of a plant asset on the date of acquisition.
b. subtracted from accumulated depreciation to determine the plant asset's depreciable cost.
c. an estimate of a plant asset's value at the end of its useful life.
d. ignored in all the depreciation methods.
: C, LO: 2,
87. When estimating the useful life of an asset, accountants do not consider
a. the cost to replace the asset at the end of its useful life.
b. vulnerability to obsolescence.
c. expected repairs and maintenance.
d. the intended use of the asset.
: A, LO: 2,
88. All the following are needed for the computation of depreciation except
a. training costs of manufacturing personnel.
b. cost.
c. salvage value.
d. estimated useful life.
: A, LO: 2,
89. All of the following statements are false regarding depreciation except
a. depreciation is an asset valuation process.
b. depreciation does not apply to land improvements.
c. recognizing depreciation results in the accumulation of cash for asset replacement.
d. depreciation does not apply to land.
: D, LO: 2,
90. All of the following statements about the useful life factor associated with depreciation are
true except
a. useful life is also called service life.
b. useful life is an estimate of productive life.
c. past experience with similar assets is helpful in establishing useful life.
d. useful life is also called expected trade-in value.
: D, LO: 2,
91. Equipment was purchased for $90,000. Freight charges amounted to $4,200 and there was
a cost of $12,000 for building a foundation and installing the equipment. It is estimated that the
equipment will have a $18,000 salvage value at the end of its 5-year useful life. Depreciation
expense each year using the straight-line method will be
a. $21,240.
b. $17,640.
c. $14,760.
d. $14,400.
: B, LO: 3,
Solution: ($90,000 + $4,200 + $12,000 − $18,000) ÷ 5 = $17,640
92. Equipment was purchased for $68,000 on January 1, 2013. Freight charges amounted to
$2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It
is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful
life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line
method of depreciation is used?
a. $26,720.
b. $13,360.
c. $11,440.
d. $22,880.
: A, LO: 3,
Solution: [($68,000 + $2,800 + $8,000 − $12,000) ÷ 5] × 2 = $26,720

93. Equipment with a cost of $320,000 has an estimated salvage value of $30,000 and an
estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method.
What is the amount of depreciation for the first full year, during which the equipment was used
3,000 hours?
a. $80,000.
b. $87,500.
c. $82,500.
d. $72,500.
: D, LO: 3,
Solution: [($320,000 − $30,000) ÷ 12,000] × 3,000 = $72,500
94. Equipment with a cost of $225,000 has an estimated salvage value of $15,000 and an
estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method.
2,700 hours?
a. $56,250.
b. $52,500.
c. $56,700.
d. $54,375.
: B, LO: 3,
Solution: [($225,000 − $15,000) ÷ 4 = $52,500
95. A machine was purchased for $180,000 and it was estimated to have an $12,000 salvage
value at the end of its useful life. Monthly depreciation expense of $1,400 was recorded using
the straight-line method. The annual depreciation rate is
a. 12%.
b. 2%.
c. 8%.
d. 10%.
: D, LO: 3,
: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective,
Solution: ($1,400 × 12) ÷ ($180,000 − $12,000) = 10%

96. A machine was purchased for $54,000 and it was estimated to have a $9,000 salvage value
at the end of its useful life. Monthly depreciation expense of $750 was recorded using the
straight-line method. The annual depreciation rate is
a. 25%.
b. 2%.
c. 16%.
d. 20%.
: D, LO: 3,
Solution: ($750 × 12) ÷ ($54,000 − $9,000) = 20%
97. A company purchased factory equipment on April 1, 2014, for $96,000. It is estimated that
the equipment will have a $12,000 salvage value at the end of its 10-year useful life. Using the
straight-line method of depreciation, the amount to be recorded as depreciation expense at
December 31, 2014, is
a. $9,600.
b. $8,400.
c. $6,300.
d. $7,200.
: C, LO: 3,
Solution: [($96,000 − $12,000) ÷ 10] × 9/12 = $6,300
98. A company purchased factory equipment on June 1, 2014, for $96,000. It is estimated that
the equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the
straight-line method of depreciation, the amount to be recorded as depreciation expense at
December 31, 2014, is
a. $9,000.
b. $5,250.
c. $4,500.
d. $3,750.
: B, LO: 3,
Solution: [($96,000 − $6,000) ÷ 10] × 7/12 = $5,250
99. The declining-balance method of depreciation produces a(n)

a. decreasing depreciation expense each period.
b. increasing depreciation expense each period.
c. declining percentage rate each period.
d. constant amount of depreciation expense each period.
: A, LO: 3,
100. Which of the following methods will result in the highest depreciation in the first year?
a. Sum-of-year's-digits.
b. Time valuation.
c. Straight-line.
d. Declining-balance.
: D, LO: 3,
101. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that
a. is used for tax purposes.
b. must be used for financial statement purposes.
c. is required by the SEC.
d. expenses an asset over a single year because capital acquisitions must be expensed in the
year purchased.
: A, LO: 3,
102. Which of the following methods of computing depreciation is production based?

a. Straight-line.
b. Declining-balance.
c. Units-of-activity.
d. None of these answer choices are correct.
: C, LO: 3,
103. Management should select the depreciation method that

a. is easiest to apply.
b. best measures the plant asset's market value over its useful life.
c. best measures the plant asset's contribution to revenue over its useful life.
d. has been used most often in the past by the company.
: C, LO: 3,
104. The depreciation method that applies a constant percentage to depreciable cost in
calculating depreciation is
a. straight-line.
b. units-of-activity.
c. sum-of-year's-digits.
: A, LO: 3,
105. On November 1, 2013, Love Company places a new asset into service. The cost of the
asset is $45,000 with an estimated 5-year life and $5,000 salvage value at the end of its useful
life. What is the depreciation expense for 2014 if Love Company uses the straight-line method
of depreciation?
a. $2,000.
b. $8,000.
c. $1,333.
d. $4,500.
: B, LO: 3,
Solution: [($45,000 − $5,000) ÷ 5] = $8,000
106. On October 1, 2014, Mann Company places a new asset into service. The cost of the
life. What is the depreciation expense for 2014 if Mann Company uses the straight-line method
of depreciation?
a. $3,000.
b. $16,000.
c. $4,000.
d. $8,000.
: A, LO: 3,
Solution: [($80,000 − $20,000) ÷ 5] × 3/12 = $3,000
107. On January 1, a machine with a useful life of five years and a residual value of $15,000
was purchased for $75,000. What is the depreciation expense for year 2 under straight-line
depreciation?
a. $15,000.
b. $45,000.
c. $12,000.
d. $36,000.
: C, LO: 3,
Solution: ($75,000 − $15,000) ÷ 5 = $12,000
108. On January 1, a machine with a useful life of four years and a residual value of $12,000
was purchased for $60,000. What is the depreciation expense for year 2 under straight-line
depreciation?
a. $5,000.
b. $24,000.
c. $12,000.
d. $30,000.
: C, LO: 3,
Solution: ($60,000 − $12,000) ÷ 4 = $12,000
109 On January 1, a machine with a useful life of four years and a residual value of $9,000 was
purchased for $57,000. What is the depreciation expense for year 2 under straight-line
depreciation?
a. $6,000.
b. $12,000.
c. $24,000.
d. $14,250.
: B, LO: 3,
Solution: ($57,000 − $9,000) ÷ 4 = $12,000
110. Which depreciation method is most frequently used in businesses today?

a. Straight-line.
b. Declining-balance.
c. Units-of-activity.
d. Double-declining-balance.
: A, LO: 3,
111. A plant asset was purchased on January 1 for $75,000 with an estimated salvage value of
$15,000 at the end of its useful life. The current year's Depreciation Expense is $5,000
calculated on the straight-line basis and the balance of the Accumulated Depreciation account
at the end of the year is $25,000. The remaining useful life of the plant asset is
a. 15 years.
b. 12 years.
c. 5 years.
d. 7 years.
: D, LO: 3,
Solution: ($75,000 − $15,000) ÷ $5,000 = 12; 12 − ($25,000 ÷ $5,000) = 7
112. A plant asset was purchased on January 1 for $45,000 with an estimated salvage value of
$5,000 at the end of its useful life. The current year's Depreciation Expense is $5,000 calculated
on the straight-line basis and the balance of the Accumulated Depreciation account at the end
of the year is $25,000. The remaining useful life of the plant asset is
a. 10 years.
b. 8 years.
c. 5 years.
d. 3 years.
: D, LO: 3,
Solution: ($45,000 − $5,000) ÷ $5,000 = 8; 8 − ($25,000 ÷ $5,000) = 3
113. Mitchell Corporation bought equipment on January 1, 2014 .The equipment cost $180,000
and had an expected salvage value of $30,000. The life of the equipment was estimated to be 6
years. The depreciable cost of the equipment is
a. $180,000.
b. $150,000.
c. $30,000.
d. $25,000.
: B, LO: 3,
Solution: $180,000 − $30,000 = $150,000

114. Mitchell Corporation bought equipment on January 1, 2014. The equipment cost $180,000
years. The depreciation expense using the straight-line method of depreciation is
a. $35,000.
b. $36,000.
c. $25,000.
d. none of these answer choices are correct.
: C, LO: 3,
Solution: ($180,000 − $30,000) ÷ 6 = $25,000
115. Mitchell Corporation bought equipment on January 1, 2014. The equipment cost $180,000
years. The book value of the equipment at the beginning of the third year would be
a. $180,000.
b. $150,000.
c. $130,000.
d. $50,000.
: C, LO: 3,
AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: ($180,000 − $30,000) ÷ 6 = $25,000; $180,000 − ($25,000 ÷ 2) = $130,000
116. Pearson Company bought a machine on January 1, 2014. The machine cost $144,000 and
had an expected salvage value of $24,000. The life of the machine was estimated to be 5 years.
The depreciable cost of the machine is
a. $144,000.
b. $120,000.
c. $40,000.
d. $24,000.
: B, LO: 3,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $144,000 − $24,000 = $120,000
The depreciation expense using the straight-line method of depreciation is
a. $40,000.
b. $28,800.
c. $24,000.
d. none of these answer choices are correct.
: C, LO: 3,
Solution: ($144,000 − $24,000) ÷ 5 = $24,000
The book value of the machine at the beginning of the third year would be
a. $144,000.
b. $120,000.
c. $96,000.
d. $48,000.
: C, LO: 3,
Solution: ($144,000 − $24,000) ÷ 5 = $24,000; $144,000 − ($24,000 × 2) = $96,000
119. Stine Company purchased machinery with a list price of $64,000. They were given a 10%
discount by the manufacturer. They paid $400 for shipping and sales tax of $3,000. Stine
estimates that the machinery will have a useful life of 10 years and a residual value of $20,000.
If Stine uses straight-line depreciation, annual depreciation will be
a. $4,100.
b. $4,072.
c. $6,100.
d. $3,760.
: A, LO: 1, 3,
Solution: [($64,000 × .90) + $400 + $3,000 − $20,000] ÷ 10 = $4,100
120. Bates Company purchased equipment on January 1, 2013, at a total invoice cost of
$900,000. The equipment has an estimated salvage value of $22,500 and an estimated useful
life of 5 years. What is the amount of accumulated depreciation at December 31, 2014, if the
straight-line method of depreciation is used?
a. $180,000.
b. $360,000.
c. $175,500.
d. $351,000.
: D, LO: 3,
Solution: [($900,000 − $22,500) ÷ 5] × 2 = $351,000
121. Newell Company purchased a machine with a list price of $96,000. They were given a 10%
discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Newell
estimates that the machine will have a useful life of 10 years and a residual value of $30,000. If
Newell uses straight-line depreciation, annual depreciation will be
a. $6,150.
b. $6,108.
c. $9,150.
d. $5,640.
: A, LO: 1, 3,
Solution: [($96,000 × .90) + $600 + $4,500 − $30,000] ÷ 10 = $6,150
122. Machinery was purchased for $170,000. Freight charges amounted to $7,000 and there
was a cost of $20,000 for building a foundation and installing the machinery. It is estimated that
the machinery will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation
expense each year using the straight-line method will be
a. $39,400.
b. $33,400.
c. $28,600.
d. $28,000.
: B, LO: 1, 3,
Solution: ($170,000 + $7,000 + $20,000 − $30,000) ÷ 5 = $33,400
123. Machinery was purchased for $170,000 on January 1, 2013. Freight charges amounted to
$7,000 and there was a cost of $20,000 for building a foundation and installing the machinery. It
is estimated that the machinery will have a $30,000 salvage value at the end of its 5-year useful
life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line
method of depreciation is used?
a. $66,800.
b. $33,400.
c. $28,600.
d. $57,200.
: A, LO: 1, 3,
Solution: [($170,000 + $7,000 + $20,000 − $30,000) ÷ 5] × 2 = $66,800
124. A machine that was purchased on January 1 for $45,000 has an estimated salvage value
of $9,000. If the machine's depreciation rate is 20%, its annual depreciation is
a. $9,000.
b. $36,000.
c. $7,200.
d. $10,800.
: C, LO: 3,
Solution: ($45,000 − $9,000) × 20 = $7,200
125. A change in the estimated useful life of equipment requires

a. a retroactive change in the amount of periodic depreciation recognized in previous years.
b. that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future years.
d. that income for the current year be increased.
: C, LO: 4,
126. Grant Company has decided to change the estimate of the useful life of an asset that has
been in service for 2 years. Which of the following statements describes the proper way to
revise a useful life estimate?
a. Revisions in useful life are permitted if approved by the IRS.
b. Retroactive changes must be made to correct previously recorded depreciation.
c. Only future years will be affected by the revision.
d. Both current and future years will be affected by the revision.
: D, LO: 4,
127. Expenditures that add to the utility of plant assets for more than one accounting period are
a. committed expenditures.
b. revenue expenditures.
c. current expenditures.
d. capital expenditures.
: D, LO: 4,
128. An expenditure for which of the following items would be considered a revenue
expenditure?
a. Plant asset.
b. Ordinary repair.
c. Addition.
d. Improvements.
: B, LO: 4,
129. Jack's Copy Shop bought equipment for $150,000 on January 1, 2013. Jack estimated the
useful life to be 3 years with no salvage value, and the straight-line method of depreciation will
be used. On January 1, 2014, Jack decides that the business will use the equipment for a total
of 5 years. What is the revised depreciation expense for 2014?
a. $50,000.
b. $20,000.
c. $25,000.
d. $37,500.
: C, LO: 4,
Solution: ($150,000 − 0) ÷ 3 = $50,000; ($150,000 − $50,000) ÷ (5 − 1) = $25,000
130. An asset was purchased for $300,000. It had an estimated salvage value of $60,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised
to $48,000 but the estimated useful life is unchanged. Assuming straight-line depreciation,
depreciation expense in Year 6 would be
a. $36,000.
b. $26,400.
c. $18,000.
d. $25,200.
: B, LO: 4,
Solution: ($300,000 − $60,000) × 5/12 = $120,000; [($300,000 − $120,000) − $48,000] ÷ (10 −
5) = $26,400
131. Equipment costing $40,000 with a salvage value of $8,000 and an estimated life of 8 years
has been depreciated using the straight-line method for 2 years. Assuming a revised estimated
total life of 5 years and no change in the salvage value, the depreciation expense for Year 3
would be
a. $4,800.
b. $10,667.
c. $8,000.
d. $6,400.
: C, LO: 4,
Solution: ($40,000 − $8,000) × 2/8 = $8,000; [($40,000 − $8,000) − $8,000] ÷ (5 − 2) = $8,000
132. Ron's Quik Shop bought equipment for $70,000 on January 1, 2013. Ron estimated the
useful life to be 5 years with no salvage value, and the straight-line method of depreciation will
be used. On January 1, 2014, Ron decides that the business will use the equipment for a total
of 6 years. What is the revised depreciation expense for 2014?
a. $11,200.
b. $5,600.
c. $9,333.
d $14,000.
: A, LO: 4,
Solution: ($70,000 − 0) ÷ 5 = $14,000; ($70,000 − $14,000) ÷ (6 − 1) = $11,200
133. An asset was purchased for $100,000. It had an estimated salvage value of $25,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised
to $20,000 but the estimated useful life is unchanged. Assuming straight-line depreciation,
depreciation expense in Year 6 would be
a. $15,000.
b. $10,625.
c. $8,500.
d. $12,500.
: C, LO: 4,
Solution: [($100,000 − $25,000) × 5/10 = $37.500; [($100,000 − $37,500) − $20,000] ÷ (10 − 5)
= $8,500
134. Equipment costing $70,000 with a salvage value of $14,000 and an estimated life of 8
years has been depreciated using the straight-line method for 2 years. Assuming a revised
estimated total life of 6 years and no change in the salvage value, the depreciation expense for
Year 3 would be
a. $10,500.
b. $9,333.
c. $14,000.
d. $7,000.
: A, LO: 4,
Solution: [($70,000 − $14,000) ÷ 8] × 2 = $14.000; [($70,000 − $14,000) − $14,000] ÷ (6 − 2) =

$10,500
135. Expenditures that maintain the operating efficiency and expected productive life of a plant
asset are generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount.
: A, LO: 4,
136. Which of the following is not true of ordinary repairs?

a. They primarily benefit the current accounting period.
b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset.
d. They increase the productive capacity of the asset.
: D, LO: 4,
FN: Measurement, AICPA PC: None, IMA: Reporting
137. Additions and improvements

a. occur frequently during the ownership of a plant asset.
b. normally involve immaterial expenditures.
c. increase the company's investment in productive facilities.
d. typically only benefit the current accounting period.
: C, LO: 4,
138. All of the following statements regarding impairments are true except
a. an impairment is a permanent decline in an asset's market value.
b. after an impairment write-down, depreciation is generally lower in a subsequent periods.
c. immediate recognition of impairment write-downs is now required.
d. impairments are generally recorded when the book value falls below the market value.
: D, LO: 4,
139. Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant
debited this amount to the asset account, Equipment and credited Cash. Was this the correct
entry and if not, why not?
a. Yes, this was the correct entry.
b. No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to
Cash.
c. No, the correct entry would be a debit to Cash and a credit to Maintenance and Repairs
Expense.
d. No, the correct entry would be a debit to Service Revenue and a credit to Cash.
: B, LO: 4,
FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
140. Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of
its airplanes. If Jamison's accountant expensed this amount, which of the following statements
is true?
a. The entry will improperly understate net income for the year.
b. The entry will improperly overstate net income for the year.
c. The entry is the correct treatment.
d. The entry will overstate the balance sheet for the year.
: A, LO: 4,
141. All of the following are factors that a company should consider before a write-down
impairment of an asset is recorded except
a. an appraisal of the asset.
b. market trends.
c. company profits.
d. obsolescence of the asset.
: C, LO: 4,
142. Brevard Corporation purchased a taxicab on January 1, 2013 for $25,500 to use for its
shuttle business. The cab is expected to have a five-year useful life and no salvage value.
During 2014, it retouched the cab's paint at a cost of $1,200, replaced the transmission for
$3,000 (which extended its life by an additional 2 years), and tuned-up the motor for $150. If
Brevard Corporation uses straight-line depreciation, what annual depreciation will Brevard
report for 2014?
a. $5,100.
b. $3,900.
c. $4,125.
d. $4,100.
: B, LO: 4,
: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective,
Solution: [($25,500 − $5,100) + $3 000] ÷ (5 − 1+ 2) = $3,900
143. In 2014, Blanchard Corporation has plant equipment that originally cost $90,000 and has
accumulated depreciation of $36,000. A new processing technique has rendered the equipment
obsolete, so it is retired. Which of the following entries should Blanchard use to record the
retirement of the equipment?
a. Loss on Disposal of Plant Assets 54,000
Equipment 54,000
b. Accumulated Depreciation - Equipment 36,000
Loss on Disposal of Plant Assets 54,000
Equipment 90,000
c. Loss on Disposal of Plant Assets 54,000
Accumulated Depreciation - Equipment 54,000
d. Plant Equipment 90,000
Accumulated Depreciation - Equipment 36,000
Loss on Disposal of Plant Assets 54,000
: B, LO: 5,
Solution: $0 − ($90,000 − $36,000) = ($54,000)
144. A gain or loss on disposal of a plant asset is determined by comparing the

a. replacement cost of the asset with the asset's original cost.
b. book value of the asset with the asset's original cost.
c. original cost of the asset with the proceeds received from its sale.
d. book value of the asset with the proceeds received from its sale.
: D, LO: 5,
145. When an asset is sold, a gain occurs when the

a. sale price exceeds the book value of the asset sold.
b. sale price exceeds the original cost of the asset sold.
c. book value exceeds the sale price of the asset sold.
d. sale price exceeds the depreciable cost of the asset sold.
: A, LO: 5,
146. The book value of a plant asset is the difference between the
a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year.
c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
: C, LO: 5,
147. A company sells a plant asset that originally cost $225,000 for $75,000 on December 31,
2014. The accumulated depreciation account had a balance of $90,000 after the current year's
depreciation of $22,500 had been recorded. The company should recognize a
a. $150,000 loss on disposal.
b. $60,000 gain on disposal.
c. $60,000 loss on disposal.
d. $37,500 loss on disposal.
: C, LO: 5,
Solution: $75,000 − ($225,000 − $90,000) = ($60,000)
148. A company sells a plant asset that originally cost $240,000 for $80,000 on December 31,
2014. The accumulated depreciation account had a balance of $120,000 after the current year's
depreciation of $20,000 had been recorded. The company should recognize a
a. $40,000 loss on disposal.
b. $40,000 gain on disposal.
c. $80,000 loss on disposal.
d. $80,000 gain on disposal.
: A, LO: 5,
Solution: $80,000 − ($240,000 − $120,000) = ($40,000)
149. A truck costing $48,000 and on which $40,000 of accumulated depreciation has been
recorded was discarded as having no value. The entry to record this event would include a
a. gain of $8,000.
b. loss of $8,000.
c. credit to Accumulated Depreciation for $40,000.
d. credit to Accumulated Depreciation for $48,000.
: B, LO: 5,
Solution: $0 − ($48,000 − $40,000) = ($8,000)
150. Equipment that cost $54,000 and on which $30,000 of accumulated depreciation has been
recorded was disposed of for $27,000 cash. The entry to record this event would include a
a. gain of $3,000.
b. loss of $3,000.
c. credit to the Equipment account for $9,000.
: A, LO: 5,
Solution: $27,000 − ($54,000 − $30,000) = $3,000
151. A truck costing $45,000 and on which $39,000 of accumulated depreciation has been
re-corded was discarded as having no value. The entry to record this event would include a
a. gain of $6,000.
b. loss of $6,000.
c. credit to Accumulated Depreciation for $39,000.
: B, LO: 5,
Solution: $0 − ($45,000 − $39,000) = $6,000

152. Equipment that cost $72,000 and on which $60,000 of accumulated depreciation has been
recorded was disposed of for $18,000 cash. The entry to record this event would include a
a. gain of $6,000.
b. loss of $6,000.
c. credit to the Equipment account for $18,000.
: A, LO: 5,
Solution: $18,000 − ($72,000 − $60,000) = $6,000
153. If disposal of a plant asset occurs during the year, depreciation is

a. not recorded for the year.
b. recorded for the whole year.
c. recorded for the fraction of the year to the date of the disposal.
d. not recorded if the asset is scrapped.
: C, LO: 5,
154. If a plant asset is retired and is fully depreciated

a. a gain on disposal will be recorded.
b. phantom depreciation must be taken as though the asset were still on the books.
c. a loss on disposal will be recorded.
d. no gain or loss on disposal will be recorded.
: D, LO: 5,
155. The book value of an asset will equal its fair value at the date of sale if
a. a gain on disposal is recorded.
b. no gain or loss on disposal is recorded.
c. the plant asset is fully depreciated.
d. a loss on disposal is recorded.
: B, LO: 5,
156. A machine costing $132,000 was destroyed when it caught fire. At the date of the fire, the
accumulated depreciation on the machine was $60,000. An insurance check for $150,000 was
received based on the replacement cost of the machine. The entry to record the insurance
proceeds and the disposition of the machine will include a
a. gain on disposal of $18,000.
b. credit to the Equipment account for $72,000.
c. credit to the Accumulated Depreciation account for $60,000.
d. gain on disposal of $78,000.
: D, LO: 5,
Solution: $150,000 − ($132,000 − $60,000) = $78,000
157. On July 1, 2014, Dillman Kennels sells equipment for $66,000. The equipment originally
cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The
Accumulated Depreciation account had a balance of $105,000 on January 1, 2014, using the
straight-line method. The gain or loss on disposal is
a. $9,000 gain.
b. $6,000 loss.
c. $9,000 loss.
d. $6,000 gain.
: D, LO: 5,
Solution: [($180,000 − $30,000) ÷ 5] × 6/12 = $15,000; $66,000 − ($180,000 − $120,000) =

$6,000
158. A plant asset with a cost of $240,000 and accumulated depreciation of $228,000 is sold for
$28,000. What is the amount of the gain or loss on disposal of the plant asset?
a. $28,000 loss.
b. $16,000 loss.
c. $16,000 gain.
d. $28,000 gain.
: C, LO: 5,
Solution: $28,000 − ($240,000 − $228,000) = $16,000
159. A loss on disposal of a plant asset is reported in the financial statements

a. in the Other Revenues and Gains section of the income statement.
b. in the Other Expenses and Losses section of the income statement.
c. as a direct increase to the capital account on the balance sheet.
d. as a direct decrease to the capital account on the balance sheet.
: B, LO: 5,
160. Sprague Associates sold office furniture for $32,000. The furniture had an original cost of
$96,000 and accumulated depreciation of $48,000. Ignoring the tax effect, as a result of the sale
a. net income will increase $32,000.
b. net income will increase $16,000.
c. net income will decrease $16,000.
d. net income will decrease $32,000.
: C, LO: 5,
Solution: $32,000 − ($96,000 − $48,000) = ($16,000)
161. Nix Corporation sold equipment for $20,000. The equipment had an original cost of
$60,000 and accumulated depreciation of $30,000. Ignoriing the tax effect, as a result of the
sale
a. net income will increase $20,000.
b. net income will increase $10,000.
c. net income will decrease $10,000.
d. net income will decrease $20,000.
: C, LO: 5,
Solution: $20,000 − ($60,000 − $30,000) = ($10,000)
162. Morton's Courier Service recorded a loss of $6,000 when it sold a van that originally cost
$56,000 for $10,000. Accumulated depreciation on the van must have been
a. $52,000.
b. $16,000.
c. $50,000.
d. $40,000.
: D, LO: 5,
Solution: ($56,000 − $10,000) − $6,000 = $40,000)
163. Equipment costing $210,000 was destroyed when it caught on fire. At the date of the fire,
the accumulated depreciation on the equipment was $84,000. An insurance check for $240,000
was received based on the replacement cost of the equipment. The entry to record the
insurance proceeds and the disposition of the equipment will include a
a. gain on disposal of $30,000.
b. credit to the Equipment account of $126,000.
c. credit to the Accumulated Depreciation account for $84,000.
d. gain on disposal of $114,000.
: D, LO: 5,
Solution: $240,000 − ($210,000 − $84,000) = ($114,000)
164. On July 1, 2014, Fleming Company sells machinery for $120,000. The machinery originally
cost $300,000, had an estimated 5-year life and an expected salvage value of $50,000. The
Accumulated Depreciation account had a balance of $175,000 on January 1, 2014, using the
straight-line method. The gain or loss on disposal is
a. $20,000 gain.
b. $5,000 loss.
c. $10,000 loss.
d. $5,000 gain.
: A, LO: 5,
Solution: [($300,000 − $50,000) ÷ 5] × 6/12 = $25,000; $120,000 − [$300,000 − ($175,000 +

$25,000)] = $20,000
165. A plant asset with a cost of $480,000 and accumulated depreciation of $456,000 is sold for
$56,000. What is the amount of the gain or loss on disposal of the plant asset?
a. $56,000 loss.
b. $32,000 loss.
c. $32,000 gain.
d. $56,000 gain.
: C, LO: 5,
Solution: $56,000 − ($480,000 − $456,000) = ($32,000)
166. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Nguyen's return on assets for 2014?
a. 400%
b. 136%
c. 25%
d. 73%
: C, LO: 6,
AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $275 ÷ ($1,050 + $1,150) = 25%
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Northwest's return on assets for 2014?
a. 12.7%
b. 11.4%
c. 13.0%
d. 11.1%
: D, LO: 6,
Solution: $390 ÷ [($3,000 + $4,000) ÷ 2] = 11.1%
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Nguyen's asset turnover ratio for 2014?
a. 4.00 times
b. 1.36 times
c. 0.25 times
d. 0.73 times
: B, LO: 6,
Solution: $1,500 ÷ [($1,050 + $1,150) ÷ 2] = 1.36
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Northwest's asset turnover ratio for 2014?
a. 1.17 times
b. 1.05 times
c. 1.52 times
d. 1.03 times
: A, LO: 6,
Solution: $4,100 ÷ [($3,000 + $4,000) ÷ 2] = 1.17
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
If Nguyen and Northwest are in the same industry and the industry average for the asset
turnover ratio is equal to 1.20 times, which of the following statements is true?
a. Nguyen is operating more efficiently than the industry.
b. Northwest is operating more efficiently than Nguyen.
c. Both Nguyen and Northwest are operating more efficiently than the average company in their
industry.
d. The asset turnover ratio does not address the question of efficient operations.
: A, LO: 6,
: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective,
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
If Nguyen and Northwest are in the same industry and the industry average for return on assets
is equal to 30%, which of the following statements is true?
a. Nguyen is more profitable than the average company in its industry.
b. Northwest is more profitable than Nguyen.
c. Both Nguyen and Northwest are more profitable than the average company in their industry.
d. Nguyen is more profitable than Northwest.
: D, LO: 6,
172. Using the following data for Stevenson Industries, compute the return on assets ratio.
Net Income $ 150,000
Total Assets 12/31/14 2,410,000
Total Assets 12/31/13 1,980,000
Net Sales 250,000
a. 6.2%
b. 10.4%
c. 6.8%
d. 11.4%
: C, LO: 6,
Solution: $150,000 ÷ [($2,410,000 + $1,980,000)] ÷ 2 = 6.8
173. During 2014, Ronald Corporation reported net sales of $1,500,000, net income of
$900,000, and depreciation expense of $100,000. Ronald also reported beginning total assets
of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated
depreciation of $500,000. Ronald's asset turnover ratio is
a. 1.5 times.
b. 1.2 times.
c. 0.98 times.
d. 0.72 times.
: B, LO: 6,
Solution: $1,500,000 ÷ [($1,000,000 + $1,500,000)] ÷ 2 = 1.2
174. During 2014, Phelps Corporation reported net sales of $3,000,000, net income of
$1,320,000, and depreciation expense of $80,000. Phelps also reported beginning total assets
of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated
depreciation of $500,000. Phelps's asset turnover ratio is
a. 1.5 times.
b. 1.2 times.
c. 2.0 times.
d. 2.4 times.
: D, LO: 6,
Solution: $3,000,000 ÷ [($1,000,000 + $1,500,000)] = 2.4
175. Intangible assets are the rights and privileges that result from ownership of long-lived
assets that
a. must be generated internally.
b. are depreciated over their useful life.
c. have been exchanged at a gain.
d. do not have physical substance.
: D, LO: 7,
176. A patent should

a. be amortized over a period of 20 years.
b. not be amortized.
c. be amortized over its useful life or 20 years, whichever is longer.
d. be amortized over its useful life or 20 years, whichever is shorter.
: D, LO: 7,
177. The cost of successfully defending a patent in an infringement suit should be

a. charged to Legal Expenses.
b. deducted from the book value of the patent.
c. added to the value of the patent.
d. recognized as a loss in the current period.
: C, LO: 7,
178. An asset that cannot be sold individually in the market place is

a. a patent.
b. goodwill.
c. a copyright.
d. a trade name.
: B, LO: 7,
179. Goodwill can be recorded

a. when customers keep returning because they are satisfied with the company's products.
b. when the company acquires a good location for its business.
c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire business.
: D, LO: 7,
180. On July 1, 2014, Linden Company purchased the copyright to Norman Computer Tutorials
for $140,000. It is estimated that the copyright will have a useful life of 5 years. The amount of
amortization expense recognized for the year 2014 would be
a. $28,000.
b. $13,125.
c. $25,900.
d. $14,000.
: D, LO: 7,
Solution: ($140,000 ÷ 5) × 6/12 = $14,000
181. On May 1, 2014, Irwin Company purchased the copyright to Quick Computer Tutorials for
$90,000. It is estimated that the copyright will have a useful life of 5 years. The amount of
amortization expense recognized for the year 2014 would be
a. $18,000.
b. $12,000.
c. $9,000.
d. $9,600.
: B, LO: 7,
Solution: ($90,000 ÷ 5) × 8/12 = $12,000
182. Which of the following is not an intangible asset arising from a government grant?
a. Goodwill.
b. Patent.
c. Trademark.
d. Trade name.
: A, LO: 7,
183. Which of the following is not considered an intangible asset?

a. Goodwill.
b. An oil well.
c. A franchise.
d. A patent.
: B, LO: 7,
184. The cost of an intangible asset with an indefinite life should

a. be amortized over 20 years.
b. be amortized over the life of the creator plus 70 years.
c. not be amortized.
: C, LO: 7,
185. Cost allocation of an intangible asset is referred to as

a. amortization.
b. depreciation.
c. accretion.
d. capitalization.
: A, LO: 7,
186. A patent
a. has a legal life of 20 years.
b. is not amortized.
c. can be renewed indefinitely.
d. is rarely subject to litigation because it is an exclusive right.
: A, LO: 7,
187. If a company incurs legal costs in successfully defending its patent, these costs are
recorded by debiting
a. Legal Expense.
b. the Intangible Loss account.
c. the Patent account.
d. a revenue expenditure account.
: C, LO: 7,
188. Copyrights are granted by the federal government

a. for the life of the creator or 70 years, whichever is longer.
b. for the life of the creator plus 70 years.
c. for the life of the creator or 70 years, whichever is shorter.
d. and therefore cannot be amortized.
: B, LO: 7,
189. Goodwill
a. is only recorded when generated internally.
b. can be subdivided and sold in parts.
c. can only be identified with the business as a whole.
d. can be defined as normal earnings less accumulated amortization.
: C, LO: 7,
190. In recording the acquisition cost of an entire business

a. goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
b. assets are recorded at the seller's book values.
c. goodwill, if it exists, is never recorded.
d. goodwill is recorded as the excess of cost over the book value of identifiable net assets.
: A, LO: 7,
191. Research and development costs
a. are classified as intangible assets.
b. must be expensed when incurred under generally accepted accounting principles.
c. should be included in the cost of the patent they relate to.
d. are capitalized and then amortized over a period not to exceed 20 years.
: B, LO: 7,
192. A computer company has $2,500,000 in research and development costs. Before
accounting for these costs, the net income of the company is $2,000,000. What is the amount of
net income or loss before taxes after these research and development costs are accounted for?
a. $500,000 loss.
b. $2,000,000 net income.
c. $0.
d. Cannot be determined from the information provided.
: A, LO: 7,
Solution: $2,000,000 − $2,500,000 = ($500,000)
193. A computer company has $3,000,000 in research and development costs. Before
accounting for these costs, the net income of the company is $3,600,000. What is the amount of
net income or loss before taxes after these research and development costs are accounted for?
a. $600,000 loss.
b. $3,000,000 net income.
c. $600,000 net income.
d. Cannot be determined from the information provided.
: C, LO: 7,
Solution: $3,600,000 − $3,000,000 = $600,000
194. Goodwill
a. may be expensed upon purchase if desired.
b. can be sold by itself to another company.
c. can be purchased and charged directly to stockholders' equity.
d. is only recorded when the purchase of an entire business occurs.
: D, LO: 7,
195. Which of the following is not an intangible asset that is reported on the balance sheet?
a. Goodwill.
b. Trademarks.
c. Employees.
d. Copyrights.
: C, LO: 7,
196. Trademarks are generally shown on the balance sheet under

a. Intangibles.
b. Investments.
c. Property, Plant, and Equipment.
d. Current Assets.
: A, LO: 7,
197. Hopson Company incurred $600,000 of research and development costs in its laboratory
to develop a new product. It spent $80,000 in legal fees for a patent granted on January 2,
2014. On July 31, 2014, Hopson paid $60,000 for legal fees in a successful defense of the
patent. What is the total amount that should be debited to Patents through July 31, 2012?
a. $600,000.
b. $140,000.
c. $740,000.
d. Some other amount.
: B, LO: 7,
Solution: $80,000 + $60,000 = $140,000
198. Given the following account balances at year end, compute the total intangible assets on
the balance sheet of Janssen Enterprises.
Cash $1,500,000
Accounts Receivable 4,000,000
Trademarks 1,000,000
Goodwill 2,500,000
Research & Development Costs 2,000,000
a. $9,500,000.
b. $5,500,000.
c. $3,500,000.
d. $7,500,000.
: C, LO: 8,
Solution: $1,000,000 + $2,500,000 = $3,500,000
199. Which of the following statements concerning financial statement presentation is false?
a. Intangibles are reported separately under Intangible Assets.
b. The balances of major classes of assets may be disclosed in the footnotes.
c. The balances of the accumulated depreciation of major classes of assets may be disclosed in
the footnotes.
d. The balances of all individual assets, as they appear in the subsidiary plant ledger, should be
disclosed in the footnotes.
: D, LO: 8,
200. Intangible assets

a. should be reported under the heading Property, Plant, and Equipment.
b. are not reported on the balance sheet because they lack physical substance.
c. should be reported as Current Assets on the balance sheet.
d. should be reported as a separate classification on the balance sheet.
: D, LO: 8,
201. A company has the following assets:

Buildings and Equipment,
less accumulated depreciation of $5,000,000 $35,000,000
Copyrights 2,400,000
Patents 10,000,000
Land 12,000,000
The total amount reported under Property, Plant, and Equipment would be
a. $59,400,000.
b. $47,000,000.
c. $57,000,000.
d. $49,400,000.
: B, LO: 8,
Solution: $35,000,000 + $12,000 = $47,000,000
202. Plant assets are ordinarily presented in the balance sheet

a. at current market values.
b. at replacement costs.
c. at cost less accumulated depreciation.
d. in a separate section along with intangible assets.
: C, LO: 8,
203. A company has the following assets:

Buildings and Equipment,
less accumulated depreciation of $4,000,000 $18,000,000
Copyrights 1,500,000
Patents 3,000,000
Land 5,000,000
The total amount reported under Property, Plant, and Equipment would be
a. $27,500,000.
b. $22,000,000.
c. $24,500,000.
d. $23,000,000.
: D, LO: 8,
Solution: $18,000,000 + $5,000,000 = $23,000,000

*204. A company purchased office equipment for $30,000 and estimated a salvage value of
$6,000 at the end of its 10-year useful life. The constant percentage to be applied against book
value each year if the double-declining-balance method is used is
a. 10%.
b. 15%.
c. 20%.
d. 2%.
: C, LO: 9,
Solution: (100% ÷ 10) × 2 = 20%
* 205. A company purchased factory equipment for $350,000. It is estimated that the equipment
will have a $35,000 salvage value at the end of its estimated 5-year useful life. If the company
uses the double-declining-balance method of depreciation, the amount of annual depreciation
recorded for the second year after purchase would be
a. $140,000.
b. $84,000.
c. $126,000.
d. $75,600.
: B, LO: 9,
Solution: ($350,000 − $0) × .40 = $140,000; ($350,000 − $140,000) × .40 = $84,000
*206. A plant asset cost $128,000 and is estimated to have a $16,000 salvage value at the end
of its 8-year useful life. The annual depreciation expense recorded for the third year using the
double-declining-balance method would be
a. $10,720.
b. $18,000.
c. $15,750.
d. $12,250.
: B, LO: 9,
Solution: ($128,000 − $0) × .25 = $32,000; ($128,000 − $32,000) × .25 = $24,000; ($128,000 −
$56,000) × .25 = $18,000
*207. On January 1, a machine with a useful life of five years and a residual value of $40,000
was purchased for $120,000. What is the depreciation expense for year 2 under the
double-declining-balance method of depreciation?
a. $28,800.
b. $48,000.
c. $38,400.
d. $23,040.
: A, LO: 9,
Solution: ($120,000 − $0) × .40 = $48,000; ($120,000 − $48,000) × .40 = $28,800
*208. A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that it
would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated
that the machine would be run 40,000 hours in the 5 years. If the actual number of machine
hours ran in 2014 was 4,000 hours and the company uses the units-of-activity method of
depreciation, the amount of depreciation expense for 2014 would be
a. $7,000.
b. $11,200.
c. $14,000.
d. $5,600.
: D, LO: 9,
Solution: ($70,000 − $14,000) ÷ 40,000 = $1.40, $1.40 × 4,000 = $5,600
*209. A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an
estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity
method of depreciation. What is the amount of depreciation for the second full year, during
which the machine was used 5,000 hours?
a. $150,000.
b. $90,000.
c. $130,000.
d. $160,000.
: A, LO: 9,
Solution: ($480,000 − $30,000) ÷ 15,000 = $30; $30 × 5,000 = $150,000
*210. Equipment with a cost of $480,000 has an estimated salvage value of $30,000 and an
estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity
method. What is the amount of depreciation for the first full year, during which the equipment
was used 3,300 hours?
a. $120,000.
b. $135,600.
c. $99,000.
d. $112,500.
: C, LO: 9,
Solution: ($480,000 − $30,000) ÷ 15,000 = $30; $30,000 × 3,300 = $99,000
*211. Equipment with a cost of $300,000 has an estimated salvage value of $20,000 and an
estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity method.
2,700 hours?
a. $75,000.
b. $70,000.
c. $75,600.
d. $72,500.
: C, LO: 9,
Solution: ($300,000 − $20,000) ÷ 10,000 = $28; $28 × 2,700 = $75,600
*212. On October 1, 2014, Hess Company places a new asset into service. The cost of the
life. What is the book value of the plant asset on the December 31, 2014, balance sheet
assuming that Hess Company uses the double-declining-balance method of depreciation?
a. $52,000.
b. $60,000.
c. $72,000.
d. $76,000.
: C, LO: 9,
Solution: [($80,000 − $0) × .40] × 3/12 = $8,000; $80,000 − $8,000 = $72,000
*213. Vickers Company uses the units-of-activity method in computing depreciation. A new plant
asset is purchased for $36,000 that will produce an estimated 100,000 units over its useful life.
Estimated salvage value at the end of its useful life is $3,000. What is the depreciation cost per
unit?
a. $3.30.
b. $3.60.
c. $0.33.
d. $0.36.
: C, LO: 9,
Solution: ($36,000 − $3,000) ÷ 100,000 = $0.33
*214. Units-of-activity is an appropriate depreciation method to use when

a. it is impossible to determine the productivity of the asset.
b. the asset's use will be constant over its useful life.
c. the productivity of the asset varies significantly from one period to another.
d. the company is a manufacturing company.
: C, LO: 9,
*215. The calculation of depreciation using the declining-balance method

a. ignores salvage value in determining the amount to which a constant rate is applied.
b. multiplies a constant percentage times the previous year's depreciation expense.
c. yields an increasing depreciation expense each period.
d. multiplies a declining percentage times a constant book value.
: A, LO: 9,
*216. Foyle Company purchased a new van for floral deliveries on January 1, 2014. The van
cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful
life. The double-declining-balance method of depreciation will be used. What is the depreciation
expense for 2014?
a. $9,600.
b. $7,200.
c. $14,400.
d. $19,200.
: D, LO: 9,
Solution: ($48,000 − $0) × .40 = $19,200
*217. Foyle Company purchased a new van for floral deliveries on January 1, 2013. The van
cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful
life. The double-declining-balance method of depreciation will be used. What is the balance of
the Accumulated Depreciation account at the end of 2014?
a. $7,680.
b. $23,040.
c. $30,720.
d. $11,520.
: C, LO: 9,
Solution: ($48,000 − $0) × .40 = $19,200; [($48,000 − $19,200) × .40] + $19,200 = $30,720
*218. Conley Company purchased equipment for $60,000 on January 1, 2012, and will use the
double-declining-balance method of depreciation. It is estimated that the equipment will have a
5-year life and a $3,000 salvage value at the end of its useful life. The amount of depreciation
expense recognized in the year 2014 will be
a. $8,640.
b. $13,680.
c. $14,400.
d. $8,208.
: A, LO: 9,
Solution: ($60,000 − $0) × .40 = $24,000; ($60,000 − $24,000) × .40 = $14,400; ($60,000 −
$38,400) × .40 = $8,640
*219. Interline Trucking purchased a tractor trailer for $84,000. Interline uses the units-of-activity
method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its
12-year useful life. Salvage value is estimated to be $12,000. If the truck is driven 80,000 miles
in its first year, how much depreciation expense should Interline record?
a. $5,333.
b. $6,720.
c. $5,760.
d. $6,222.
: C, LO: 9,
Solution: ($84,000 − $12,000) ÷ 1000,000 = $.072 × 80,000 = $5,760
*220. Danford Trucking purchased a tractor trailer for $126,000. Danford uses the
units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles
over its 12-year useful life. Salvage value is estimated to be $18,000. If the truck is driven
80,000 miles in its first year, how much depreciation expense should Danford record?
a. $8,000.
b. $10,080.
c. $8,640.
d. $9,333.
: C, LO: 9,
Solution: [($126,000 − $18,000) ÷ 1000,000] × 80,000 = $8,640

*221. All of the following statements are true regarding the declining-balance method of
depreciation except
a. the declining-balance method ignores salvage value when calculating depreciation.
b. the declining-balance method produces lower depreciation expense in the early years as
opposed to the later years.
c. the declining-balance method is compatible with the matching principle.
d. the declining-balance method is appropriate when assets lose their usefulness rapidly.

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Chapter 9 Plant Assets, Natural Resources and Intangible Assets

Solution: $350,000 + $25,000 + $35,000 = $410,000

Solution: $84,000 + $5,000 + ($7,000 − $1,200) = $94,800

49. A characteristic of a plant asset is that it is

54. The cost of land does not include

Solution: $280,000 + $3,000 + $2,000 + $4,440 = $289,400

Solution: $90,000 + $2,500 + $1,000 + $2,200 = $95,700

Solution: $105,000 + $36,000 = $141,000

Solution: $62,000 + ($300 − $120) + $1,500 + 1,130 + $560 = $65,370

Solution: $210,000 + ($2,000 − $1,280) + $6,000 + $4,520 + $3,400 = $224,640

Solution: $45,000 + $18,000 = $63,000

Solution: $40,000 + $2,500 + $1,200 + $220 = $43,920

Solution: $45,000 + $3,600 + $640 + $860 = $50,100

s increase its van account?

Solution: $50,000 − $5,000 + $2,500 = $47,500

Solution: ($75,000 × .98) + $3,750 + $1,320 + $3,000 = $81,570

Solution: $70,000 + $3,500 + $750 + $1,500 = $75,750

Solution: $42,000 − $4,200 + $2,100 = $39,900

Solution: ($250,000 × .98) + $12,500 + $4,400 + $10,000 = $271,900

Solution: $60,000 + $4,500 + $1,200 + $220 = $65,920

74. All leases are classified as either

75. Interest may be included in the acquisition cost of a plant asset

76. Which of the following is included in the cost of constructing a building?

77. The balance in the Accumulated Depreciation account represents the

81. The cost of a long-term asset is expensed

82. The book value of an asset is equal to the

84. Depreciation is a process of

86. In computing depreciation, salvage value is

Solution: ($90,000 + $4,200 + $12,000 − $18,000) ÷ 5 = $17,640

Solution: [($68,000 + $2,800 + $8,000 − $12,000) ÷ 5] × 2 = $26,720

Solution: [($320,000 − $30,000) ÷ 12,000] × 3,000 = $72,500

Solution: [($225,000 − $15,000) ÷ 4 = $52,500

Solution: ($1,400 × 12) ÷ ($180,000 − $12,000) = 10%

Solution: ($750 × 12) ÷ ($54,000 − $9,000) = 20%

Solution: [($96,000 − $12,000) ÷ 10] × 9/12 = $6,300

Solution: [($96,000 − $6,000) ÷ 10] × 7/12 = $5,250

99. The declining-balance method of depreciation produces a(n)

102. Which of the following methods of computing depreciation is production based?

103. Management should select the depreciation method that

Solution: [($45,000 − $5,000) ÷ 5] = $8,000

Solution: [($80,000 − $20,000) ÷ 5] × 3/12 = $3,000

Solution: ($75,000 − $15,000) ÷ 5 = $12,000

Solution: ($60,000 − $12,000) ÷ 4 = $12,000

Solution: ($57,000 − $9,000) ÷ 4 = $12,000

110. Which depreciation method is most frequently used in businesses today?

Solution: ($75,000 − $15,000) ÷ $5,000 = 12; 12 − ($25,000 ÷ $5,000) = 7

Solution: ($45,000 − $5,000) ÷ $5,000 = 8; 8 − ($25,000 ÷ $5,000) = 3

Solution: $180,000 − $30,000 = $150,000

Solution: ($180,000 − $30,000) ÷ 6 = $25,000

Solution: ($180,000 − $30,000) ÷ 6 = $25,000; $180,000 − ($25,000 ÷ 2) = $130,000

Solution: $144,000 − $24,000 = $120,000

Solution: ($144,000 − $24,000) ÷ 5 = $24,000

Solution: ($144,000 − $24,000) ÷ 5 = $24,000; $144,000 − ($24,000 × 2) = $96,000

Solution: [($64,000 × .90) + $400 + $3,000 − $20,000] ÷ 10 = $4,100

Solution: [($900,000 − $22,500) ÷ 5] × 2 = $351,000

Solution: [($96,000 × .90) + $600 + $4,500 − $30,000] ÷ 10 = $6,150

Solution: ($170,000 + $7,000 + $20,000 − $30,000) ÷ 5 = $33,400

Solution: [($170,000 + $7,000 + $20,000 − $30,000) ÷ 5] × 2 = $66,800

Solution: ($45,000 − $9,000) × 20 = $7,200

125. A change in the estimated useful life of equipment requires

Solution: ($150,000 − 0) ÷ 3 = $50,000; ($150,000 − $50,000) ÷ (5 − 1) = $25,000

Solution: ($40,000 − $8,000) × 2/8 = $8,000; [($40,000 − $8,000) − $8,000] ÷ (5 − 2) = $8,000

Solution: ($70,000 − 0) ÷ 5 = $14,000; ($70,000 − $14,000) ÷ (6 − 1) = $11,200